Except for the contract price, all futures contracts have standard terms and conditions, which are non-negotiable. The exchange on which a particular commodity is traded sets the terms of its contracts. Although the same commodity may trade on multiple futures exchanges, there is usually one exchange, with its one standard contract, that dominates each commodity market. However, competition among exchanges is increasingly offering traders additional choices.
In consumable commodities the terms include:
Specific grade,
or quality
Quantity
Delivery month
How
the price is calculated
(dollars per pound,
cents per bushel, and
so on)
Minimum tick — the
allowable incremental
price change
(1 dollar
per pound, 1/100 cents
per pound, and so on)
So you want to buy fresh pork bellies
The set terms of a futures contract might look like this:
Commodity and grade
Pork bellies, fresh
Delivery months
January, March, May, July, August, September, and November
Price
Cents per pound
Minimum tick
0.0001 cents per pound = $4 per contract
Exchange
Chicago Mercantile Exchange (CME)
Contract size
40,000 pounds
The minimum tick is expressed as the incremental amount and the minimum total price change given the set contract size. In this example, a 0.0001 cents per pound increase on 40,000 pounds is $4.
